Strategy Archives - Cboe Blogs

In times of geopolitical uncertainties, many investors are searching for investments with low volatility and higher yields.
Several news stories have noted that stock indexes recently had low volatility. On October 18 the 20-trading-day historic volatility for the S&P 500 (SPX) Index dropped to 3.4, its lowest level since 1969 (source: Bloomberg). There now is concern that with higher price-earnings ratios, the volatility of stock indexes could spike in coming months.
EVEN LOWER HISTORIC VOLATILITY[...]

There are lots of articles floating around discussing the lack of volatility in the markets along with the low level of VIX. It’s reaching a point where we don’t have much else to say and are just waiting for a change of scenery. With all that going on, the four volatility indexes based on SPX option pricing remained low and on average were basically unchanged last week.
There is a single data point standing out on the table below. That is VVIX in the upper 90’s. [...]

VIX threatened to close the week with a 9 handle, but managed to stay out of single digit territory. Spot VIX was down over 16% and the standard September futures contract which goes off the board on the open Wednesday was down 16% as well. There’s still a premium of 0.95 between spot and September VIX, but the gap that has persisted until recently is closing. October, which will take over as the front month, remains at a premium of about 1.75.
Friday was fairly quiet,[...]

Small cap stocks had a great week last week with the Russell 2000 (RUT) rising 2.25% which the large cap focused Russell 1000 (RUI) was up about 1.6%. For the year RUI still has just over a 6% lead on RUT.
Small cap volatility as measured by the CBOE Russell 2000 Volatility Index (RVX) has spent most of 2017 at a historically high premium relative to large cap volatility, best depicted by VIX. The chart below shows RVX basically crashing to the lowest levels seen in 2017 last week. [...]

Small cap stocks lost some of the recently gained ground relative to large cap stocks last week. The Russell 2000 (RUT) was down over 1% while the large cap focused Russell 1000 (RUI) was up slightly. The spread of RUI to RUT out performance for 2017 has now widened to almost 5%.
Despite the tough week for small cap stocks the CBOE Russell 2000 Volatility Index (RVX) finished Friday at a 2017 low. This lower relative level for RVX pushed the RVX to VIX ratio to the lowest[...]

Small caps did not have a good week, despite the rebound in the equity markets after Wednesday’s swoon. The Russell 2000 (RUT) was down over 1% last week actually dipping into negative territory for 2017 before recovering at the end of the week. Large cap stocks as represented by the Russell 1000 (RUI) held up better than small caps with RUI down only 0.40% for the week.
When volatility spikes the relative move is usually greater for VIX that the CBOE Russell 2000 Volatility Index[...]

Whenever we come upon a holiday it's time to take a breath and step back. But as option traders, there is no such break as we are mindful of volatility and the option decay that constantly exists in these derivatives. Time is a critical component of option value, and when there are fewer days to trade an option the decay becomes a detriment to the option buyer. Over the next couple of weeks, the markets will be closed for a full session (Memorial Day). Hence, over the next[...]

I have a handful of former Options Institute students who like to keep me up on their trading. Yesterday morning I got an email from one who decided to take the other side of the big move to the upside in the S&P 500 (SPX). Just after the market open, when the SPX was at 2374, the trader sold the SPX Apr 24th 2370 Call for 6.40 and purchased the SPX Apr 24th 2380 Call for 1.45 and a net credit of 4.95. These options are Monday Weeklys and they expired on the close yesterday. [...]

VIX reached 2017 highs last week as we got our first experience with downside volatility in 2017. VIX closing at 13.12 widens the low to high range for the first quarter to 2.54. Barring a close of 13.26 on the upside or 10.44 on the downside next week this will go down as the narrowest VIX range on record.
We continue to look to our friends in Europe for volatility guidance. After the Dutch election results VSTOXX had the biggest one day drop on record. Equity market[...]

At the 33rd Annual CBOE Risk Management Conference in California last week, several speakers discussed ways to use sentiment analysis and the volatility risk premium in their quest to add alpha and enhance the risk-adjusted returns of their portfolios.
I am pleased to report that two upcoming events will provide more details and analysis of the topics of developing investable and actionable intelligence from analysis of sentiment trends on social media, and generating attractive risk-adjusted returns[...]

Textbook and parallel are two terms that come to mind to described the shift in the VXST – VIX – VXV – VXMT curve below. Also, steep comes to mind as the longer dated indexes are pretty elevated when compared to VIX and VXST.
The long funds below benefited from volatility increasing a bit on Tuesday last week, with VIX even putting in a 2017 high, before resuming their downward trajectory. Note TYVIX giving up 10% which puts the volatility of 10-Year Treasury Note options[...]

We’ve experienced several twists in the volatility markets this year where the futures don’t move in sync or in line with spot VIX. This occurred again last week as VIX rose almost 6% while the futures markets moved lower. Part of this may be attributed to February going off the board, at least with respect to March, but the farther date futures had been a bit elevated this year, but with the lack of any sort of volatility event appear to have started to weigh on the farther[...]

I’m on the road today playing an academic, but regardless of how far I am from CBOE I still am fortunate that I’m constantly keep in the loop about big trades. I got a heads up this morning that a VIX Mar 15 – 22 1 x 4 Call spread traded in the VIX pit a few minutes after the open. My assumption was the trader bought the 15’s and sold the 22’s (I was wrong) mainly because all the big trades seem to be based on a low volatility outlook. Also, my incorrect[...]

As the Russell 2000 (RUT) continues to move into uncharted territory at least one trader believes 1500 is not achievable. At least not through standard March (3/17) expiration. Early today when RUT was around 1393 (much lower than today’s close) a pretty big trade came into the RUT post. Specifically, they was a seller of 37,601 RUT Mar 1490 Calls at 1.42 who then purchased 37,601 RUT Mar 1510 Calls for 0.95. The result is a net credit of 0.47 and a payoff at RUT AM[...]

Small caps continue to close the gap on large cap stocks as the Russell 2000 (RUT) gained 0.52% last week while the Russell 1000 (RUI) was up by 0.18%.
On the volatility front the CBOE Russell 2000 Volatility Index (RVX) remains at the historical high end of value relative to VIX. This can be attributed to VIX hovering around multiyear lows as much as RVX not following VIX to the lowest end of the range.
On Monday, as the first trading day of the week came to a close one trader[...]

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